Lufthansa has agreed to pay up to EUR250 million euros (USD$350 million) for smaller Belgian rival Brussels Airlines to expand its flight network and add premium travellers.
Lufthansa, which is seen as one of the key players in the consolidation of the European airline industry, has been linked to a number of other carriers -- including loss makers Alitalia, Austrian Airlines and Scandinavia's SAS.
The German carrier on Monday confirmed it planned to buy a 45 percent stake in the airline for EUR65 million, with an option to buy the rest from 2011. The total price would depend on performance-related factors and initially on 2010 results.
Lufthansa chief executive Wolfgang Mayrhuber said the purchase was a further sign of his company's transformation from a purely national carrier to a "European airline system" able to compete with Asian and North American giants.
Brussels Airlines would bring a prime location where the European Union and NATO are based, logistics experience and a wide network, notably including many flights to and from Africa.
It would operate as a largely independent carrier and retain its brand, as well as its headquarters and management in Brussels. It would also likely join the Star Alliance global network, of which Lufthansa is a member.
The German carrier added that it expected to be able to achieve a mid-double-digit million euro improvement in earnings and costs annually within three years of regulatory approval by combining the airlines.
This would come from greater leverage in costs, such as purchasing planes, and from higher revenues from more routes. Job cuts were not initially envisaged.
Mayrhuber declined to say more than that the German company was on the look out, but that its profitability was the number one concern.
"We are looking at all options that are coming up but we are not confirming anything," he told a news conference.
Brussels Airlines first flew as a single operator in March 2007 after the 2006 merger of British entrepreneur Richard Branson's budget carrier Virgin Express and SN Brussels Airlines, the successor of state airline Sabena.
The two airlines had been brought under the control of SN Airholding in 2004. A group of companies and regional investment funds hold 70 percent of Brussels Airlines, Virgin the rest.
It carried 5.8 million passengers in 2007, compared with Lufthansa's 63 million. Its revenue rose 2 percent to EUR921 million and consolidated net profit rose 66 percent to EUR23.1 million.
Lufthansa added that the acquisition still needed approval from regulators, Lufthansa's supervisory board and the board of directors and shareholders of SN Airholding.
